Gavin O'Reilly, chief operating officer of Independent owner Independent News & Media, was spotted in the Daily Mail's opulent offices in West London last Tuesday. Now the reason for his visit has become clear.

The 42-year-old Irishman, son of IN&M chief executive Sir Tony, was putting the final touches to a deal he believes will safeguard the paper's future, which will see the Independent titles move out of their east London offices and into the luxurious environs of Northcliffe House in Kensington, the home of Daily Mail owner DMGT and its sister titles. That is part of a cost-sharing deal under which both companies share back office resources, giving the loss-making paper and its Sunday sister title more cash to invest in journalism. But it also raises questions about the long-term independence of a paper launched by idealistic founders determined to keep it out of the clutches of the corporations who control rival newspaper groups.

Fleet Street wags are already referring to the title as the 'Endipendent', while long-serving journalists are recalling the days when it was part of Mirror Group Newspapers and Mirror executives called the shots.

That is too pessimistic a prognosis. In the short term, at least, the arrangement with the Mail is good news and it is likely to keep it out of the clutches of a predator for the foreseeable future.

Earlier this month Indy editor-in-chief Simon Kelner announced severe budget cuts, including 90 redundancies. The reporters and writers who remain may be feeling less anxious now, even if some are apprehensive about the prospect of working alongside competitors. The culture of the two papers couldn't be more different - the Mail is well-resourced but its journalists are driven hard and it espouses a relentlessly moralistic view of the world while the Independent, which borrowed some of the Mail's campaigning vigour when it switched to a tabloid format, remains a liberal title at heart.

But the titles will continue to operate as they do now, and any suggestion that sharing back office functions might lead to a closer commercial tie-up or editorial co-operation between the two groups is emphatically denied by both companies. The Independent and its Sunday sister title will retain their editorial integrity. The only thing reporters will be sharing is the staff canteen, they insist.

The Independent is portraying the deal as another example of its willingness to create a new model that others might follow, just as it did when it announced its conversion from broadsheet to 'compact'. But that has not prevented some industry sources from wondering aloud whether an alliance may develop into something more. Now that the Independent titles are wrapped in the Mail's warm embrace, some believe the DMGT's executive could begin to clutch it ever closer, perhaps even engineering a takeover by stealth.

Sources close to IN&M claim that two other rivals offered to rent office space to the Independent titles as part of a similar cost-sharing deal, and senior industry figures confirm talks had been taking place for months before a deal was struck with DMGT.

The implication is that the arrangement is simply an act of expediency, but the Independent was negotiating from a position of weakness, and there are rumours this weekend that DMGT may even have secured rights on the title that would give it first refusal in the event of a sale. The company's chairman Lord Rothermere, who served a long apprenticeship at the group before succeeding his father Vere in 1998, is said to view a corporate deal as the best way to make his mark and although the economic climate is far from ideal - DMGT unveiled its own cost-cutting package last month - it is thought that executives at Associated discussed the possibility of making an offer for the nominal sum of £1. DMGT denies this.

The Mail has wanted to add a quality title to its stable for years, and tried to buy the Telegraph titles when their disgraced proprietor Conrad Black relinquished control of them in 2003. O'Reilly does not want to sell the titles, despite pressure to do so from Irish business rival Denis O'Brien, who has built a 26 per cent stake in IN&M, but executives held brief exploratory talks with Zac Goldsmith recently, which were called off when the environmentalist realised he couldn't afford to take on its debts.

O'Reilly Jr insists it loses far less than some in the industry assume, but it is on course to lose £10m this year and IN&M is saddled with debts of well over £1bn. The titles generate copy for the company's stable of 200 titles in 22 countries and serve as a calling card when O'Reilly enters new markets, opening doors in India and South Africa that might otherwise have remained firmly shut.

However, that value has to be weighed against the continued cost of supporting titles that are the weakest in the 'quality' market at a time when newspaper circulations are tumbling and advertising is migrating online.

A steady fall in circulation has accelerated since the turn of the year, and research seen by The Observer, based on interviews with Independent buyers, shows that it is losing loyal readers, particularly women and older consumers, at an alarming rate. Sales of the Independent fell by 15 per cent from October 2007 to October 2008, and now stand at just over 200,000. Full rate year-on-year sales (around 120,000) declined by 19 per cent, while the Independent on Sunday saw its full price sales plummet by 29 per cent over the same period.

Women who have a 'relationship' with the daily, defined as those who have read in the last seven days or describe it as their main paper, are abandoning it in large numbers. The Independent has lost 27 per cent of its female readers in the last 12 months. The number of 45-54 year olds reading the paper fell by 36 per cent in the period covered by the research and by 26 per cent among the 55-64 old age group. Rival newspapers are not immune to the same trends, although a recent price increase - from 80p to £1 - may not have helped the Independent

Editor Roger Alton, who led The Observer for a decade, has reinvigorated the title, subtly toning down the hectoring tone of some of its front pages while introducing editorial verve and is well liked by staff, but some strategic decisions are beyond his control.

Just over 41 per cent of readers say the fact they can read news on the internet has deterred them from buying the Independent and although the same could be said of rivals, it has been slower to invest in online content and it is probably too late for it to close the gap on competitors with a strong internet presence.

'Both the daily title and the IoS appear to be in serious trouble,' the research concludes, particularly as core readers, usually the last to switch to another product, now seem to be drifting away. New investment could change all that however, and although O'Brien is unlikely to withdraw his demand that the Independent should be sold sources close to the billionaire say he supports the deal with the Daily Mail, accepting that in the absence of a buyer reducing costs is a sensible strategy.

He may be biding his time, waiting for IN&M's debts to push O'Reilly into a corner. The company is currently trying to refinance bank loans worth hundreds of millions of pounds, some of which expire early next year, and that is proving problematic because the UK arm of the company, which was effectively subsidised by the profitable Belfast Telegraph for many years, is in the red now that paper is making less money. That does not make a sale inevitable, but it may make it more likely. The deal with the Daily Mail has bought the paper some time, but in the long-term an Independent future seems far from assured.